Bethlehem to refinance landfill debt

The deal would result in nearly $1 million in savings, not extend the life of the debt.

December 27, 2012|By Nicole Radzievich", Of The Morning Call

When he couldn't get nonprofits to donate the $1 million he proposed they pay in his 2013 budget proposal, Mayor John Callahan offered an eleventh-hour proposal that included making up more than half that shortfall from a bond refinancing.

City Council, which unanimously incorporated the savings in the budget, is expected in the coming months to review the deal that Callahan said will net the city $614,000 in interest savings for 2013 and $372,343 in 2014.

"That's based on a pure refinancing of the debt based on current interest rates," Callahan said. "It does not require a balloon payment or extension of the debt schedule."

The refinancing targets the $8.3 million in principal left on the debt tied to the sale of its former landfill. The city had borrowed the money to make the landfill environmentally sound before the 1993 reopening of the landfill in Lower Saucon Township. That borrowing was tax exempt as long as the city kept the landfill for five years, but the city sold it three months before that period expired in 1998.

Instead of fining the city or demanding an immediate repayment of the bonds, the Internal Revenue Service allowed the city to keep the bonds tax exempt if it would escrow the money to repay the debt by 2004 as scheduled.

Unable to make the payments without a hefty tax hike, City Council in 2001 approved taking out a 25-year, taxable bond.

Under the current schedule, the city is to pay $882,555 next year in principal and interest payment. That number would drop to $268,764 with the refinancing, according to the schedule drawn up by city consultants Concord Public Financial Advisors Inc.

In 2014, city's debt payment would jump to $507,517, though it would be a $372,343 less under the current financing.

Nearly all the savings from the deal — $987,484 — would be realized the first two years. The debt is scheduled to be repaid by 2026.

Council President Eric Evans said he wants to take a closer look at the numbers but supports the concept. Any time the city can help current budgets without taxing future budgets makes the deal attractive, he said.

The refinancing was one of a handful of budget adjustments that Callahan proposed days before council adopted the budget. He also increased his estimates of what the earned income tax and casino host fee would bring in by more than $700,000 and proposed other cuts to cover the $1 million he originally budgeted as coming from nonprofits.

Callahan had proposed that Lehigh University, Lehigh Valley Hospital-Muhlenberg and Moravian College, which are exempt from property taxes, collectively contribute the money for the emergency services, like fire and police protection, they use. While the conversations are ongoing, Callahan said he had no agreement in place and proposed the budget adjustments.